Spectrum auction: Montek Singh Ahluwalia suggests lower base price

NEW DELHI: Planning Commission deputy chairman Montek Singh Ahluwalia has blamed the high reserve price for the failure of the first two rounds of airwaves sale and suggested a reduction in the base price before next set of spectrum auctions.

He has also suggested that spectrum trading be allowed and said this policy change will yield better auction results. Current laws do not allow mobile phone companies to trade spectrum, the bandwidth on which mobile calls travel.

"A third failed auction would impact very adversely on the investment climate and our credibility. The Telecom Regulatory Authority of India (Trai) should take into account the recent auction experience, the changed market conditions and also any other factors that may be material and recommend fresh reserve prices," Montek said in a communication to Kapil Sibal.

The planning commission deputy chairman's views assume importance as he is a member of the panel of ministers on airwaves who will finalise the minimum bid price for the next round of auctions that is scheduled to be held soon.

The Centre has been mandated to hold the third round of spectrum actions as the Supreme Court recently ruled earlier this year that all airwaves vacated by companies whose permits were quashed by it in February 2012 should be put up for sale.

The Supreme Court's February 2012 orders had freed up 430 MHz of airwaves, but the telecom department had put up only 271 MHz or units of airwaves for sale in during the first round November. That sale ended in a failure and the government got less than a fourth of its revenue target of 40,000 crore as there were no takers for about 57% of the airwaves that were put on sale.

It was then forced to restrict the upcoming spectrum auctions to just the 800 MHz band used by CDMA operators as there were no bidders for the other frequencies.

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The telecom department had earlier planed to sell unsold GSM frequencies in the 1800 MHz band from last year's auctions in four circles - Delhi, Mumbai, Karnataka and Rajasthan - along with a portion of airwaves held by incumbent operators in the 900 MHz band, during the March 2013 sale. The Indian arm of Russian conglomerate Sistema was the sole bidder in the second round of spectrum auctions where it won airwaves in eight circles for 3,639 crore.

Montek, in his communication to Sibal, has pointed out that the 'auction methodology had not attracted any adverse comments' and the only critical issue was the reserve price.

He also said that while the reserve price specified by Trai had been lowered twice, 'these adjustments were insufficient' The planning commission deputy chairman further said that market condition and business case for future prospects may have changed considerably while adding that there may also have been relevant changes in technology, all of which would have to be considered towards a revision in the base price.

"I would also suggest that this is the time to refer to Trai whether the new auctions should be conducted on the assumption that spectrum henceforth auctioned should be tradable. Tradability obviously could not be allowed when spectrum was being allotted on the basis of an administrated price it would allow these companies to make pure trading gains. However, if it is auctioned on the clearly stated basis that it is tradable, then any potential for gain through substantial trading will be reflected in the auction price," Montek argued.

Ahluwalia had raised the issue of spectrum trading several time in the past too and the telecom ministry had said it agreed 'in principle' to the proposal, but had always added that the time was not right to introduce this policy change. "I think we are now at a stage where it is the ideal time," Montek said.

"From an economic efficiency point of view, tradability will only ensure greater economic efficiency which in turn will mean higher revenues to the government on account of higher spectrum usage charges because of better use and also of higher profits. Making spectrum tradable will also increase the auction realisation which will help realise additional revenues in 2013-14," he added.